What is risk management:
Risk management is the process of identification, assessment, and treatment of risks that seeks to minimize, control and monitor the impact of risk occurrence through the cost-effective utilization of resources.
Where does risk management apply
Risks occur in every walk of life, in every industry and in every service delivery enterprise, both private and public sectors. The severity of risks occurring depends upon many factors. In order to quantify such severities most organizations traditionally employ some sort of risk processes to assess the likelihood of risks occurring and they’re perceived or calculated impact. This enables risks to be prioritized and resources applied to meet the overall best interests of the organization and its internal and external stakeholders.
Risks, great and small
In today’s connected and integrated world risks and their impacts can and do translate across international boundaries. No longer are they confined to departments and within individual companies. Economic boundaries and geographical structures are such that companies now need to assess risks in a world where a volcano in Iceland can cause the closure of a manufacturing plant in Japan.
Equally, at the individual organization level, the importance of undertaking health and safety risk assessments in order to protect the health, safety, and welfare of its employees is a legal obligation for many companies. Product manufacturers will undertake design risk assessments in order to ensure that the ultimate users are protected from any safety-related design hazard.
Local authorities are required to ensure that they provide safe highways and passage for the general public. For example, they will need to assess the amount of sand and grit they will need to ensure they can cope with the pressures of harsh winter weather to protect the individual motorists and the unsuspecting pensioner on an icy pavement.
All of the above and in many more private and public sector industries and services there is the basic requirement for someone or some persons to identify a potential risk, to evaluate the likelihood of the risk occurring and to calculate the impact or consequence of the risk in order to best minimize its impact.
Risk management – does it work?
Armed with the knowledge that risk is everywhere but that there are robust systems and processes to manage them is it safe to say that such systems and processes work?
Certainly there are many examples of where risk management has worked. If the available systems and processes didn’t work then they simply wouldn’t be used. Risk departments and risk mangers would be unlikely to exist and an irresponsible attitude to risk would likely be prevalent.
Risk management however does not work in all cases. It’s impossible not to be tempted to assert that the BP oil well catastrophe in the Gulf of Mexico could have been prevented if the risks had been fully evaluated. Similarly the lack of controls to adherence of risk processes that has resulted in global financial problems has been laid at the doors of some of the worlds largest financial institution and banks.
Another dimension to risk management
With the proliferation of risk management tools, the use of highly complex modelling techniques and experts and specialists in their fields of expertise, why is it that risks of the magnitude and scale noted above, to the trip hazard on the local pavement, to the vulnerability of the child in local authorities occur?
It is simply that risk management is not just about rules and regulations. Successful risk management needs a culture and a set of values that ensures that it becomes part of an organizations DNA. If the corporate culture is perceived as resentful towards those who raise risks then any risk process is useless. People will hope that the problems just go away. The culture must allow for honesty and openness that allows for maximum benefits to arise from the tools and modelling techniques.
Why choose a career in risk management?
Risk managers and people whose job it is to minimise the occurrence of risks are experts in their field. Their value contribution to any organisation is immense. Qualifications in risk management for some specialised industries – for example insurance – is sometimes necessary and will certainly add to an individuals self marketing capability. However a large number of active risk management individuals do not consciously set out on a career path of risk management. They some how stumble in to it. At this point there is a choice. Do you stick with the tools and techniques or do you grasp the risk agenda and take it forward? The emergence of enterprise risk management aligned to systems thinking; the inescapable link between successful risk intelligent organisations and culture; the in depth knowledge of an organisation and its independencies are immeasurable assets in a world where some have developed a low tolerance to risk. A career in risk management can be as dull as it can be exciting. The choice is yours.
But remember, risk is about taking the opportunity to grow, expand and compete more effectively. Without risk, there is no reward – for the organisation or for the individual.